As Democrats and Republicans have spent the past months figuring out how to save the economy, a provision garnered widespread support from lawmakers: reviving the paycheck protection program, the government’s marquee to help calm the season for small businesses Effort.
Mitch McConnell of Kentucky, the Senate Republican leader, called the lending program a “bipartisan slam addict.” House Democrats included aid packages in the summer and expansion and expansion of the program in the fall. And Treasury economists said in December that the program may have saved about 19 million jobs.
Yet there is dissatisfaction with a notable detachment: academic economists studying the program have concluded that it has saved relatively few jobs and that, at a cost of more than half a trillion dollars, it is far less efficient than other government efforts Let’s help the economy.
“A very large proportion of the profits went to a very small portion of firms, and they were probably the least firm,” said David Autor, an MIT economist who led a study.
The divergence of views about the program’s economic payoff stems in part from ambiguity about its goals: saving jobs or saving businesses.
Using a different method than Treasury economists, Mr. Autor says the paycheck protection program saved 1.4 million to 3.2 million jobs. Other researchers have offered broadly similar estimates.
Given the cost of the program, saving jobs on that scale is not necessarily a success. According to several assessments, unemployment benefits also cost less, and provide programs such as food aid and assistance to state and local governments.
And because the paycheck program was designed to reach as many businesses as possible, a lot of the money went to companies that were at low risk of laying off workers, or who brought them back quickly even without help .
“It’s a really inefficient use of the fund,” said Eric Zwick, an economist at the University of Chicago’s business school.
Many policy experts in Wall Street and Washington – as well as businesses and banks on main roads across the country – say the program’s merits should be evaluated to protect businesses. On that basis, they say, it helped prevent major disasters and promoted economic remedies.
“A major goal was to keep these occupations alive so that when the economy starts recovering and then the economy reopens, there will be businesses nearby to hire unemployed workers,” Michael said R. Tension, an economist at the American Institute of Enterprise, a conservative think tank. Preliminary evidence suggests that the program succeeds by that metric, he said.
In the short term, the proponents of the program are winning the argument. When Congress approved a $ 900 billion relief package in December, the majority of the $ 325 billion in small business aid was for a slightly revised version of the paycheck protection program. Businesses began applying for assistance last month.
But a debate on the merits of the program could shape the next round of aid. President Biden’s $ 1.9 trillion pandemic relief plan includes billions for small businesses, but no new money for the program. His colleagues are weighing what to do about the money already allocated.
Mr. Biden’s proposal includes direct grants to the hardest hit small businesses and a request for Congress to find new ways to help consumers pullback and restaurants struggling with state and local restrictions.
Many Democrats on Capitol Hill, along with some advocates for small-business relief in think tanks and lobbying shops around Washington, say lawmakers should move in a more focused and efficient way to support small businesses until Extensive vaccination does not completely reopen the economy.
Congress formulated a paycheck protection program in March as the business closed early in the epidemic. The program called for layoffs by providing forgiving, low-interest loans to help pay employees, even if they were not working.
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Efforts administered by banks began at a slow pace. But over time, loans began to reach more businesses, due to changes that led to wider access and loose restrictions on spending money.
One beneficiary was Schuchart, a Seattle-based general contractor with more than 100 employees. On 7 April, with little revenue of more than two weeks – and initially its longtime bank after failing to obtain a PPP loan through Wells Fargo – officials moved to start Furlofs the next day.
“We were discussing, what is our next plan?” The company’s Chief Financial Officer Christian Giseman said. “And our next plan was not good. This was the ‘hitting the red button’ scheme for our people. “
Instead, Mr. Giseman received a small organization from the Washington Trust Bank, which he had approached a day earlier. Schuchart was approved for a loan of approximately $ 2.7 million. Instead of announcing layoffs, the company told its employees that their jobs were safe.
“I felt like I was swimming, because there was a lot of bad news in the last month,” Mr. Gisman said. “There was something here, after all, we can all celebrate.”
However, stories such as Mr. Gesman’s are not directly up to interpretation. Perhaps it would have found another way, like Schuchart and the companies, to complete the construction.
Economists have tried to answer that question using data. Mr. Autor compared only companies with fewer than 500 employees – those who could qualify for the original version of the program – with people above that size, who could not. If loans were a big help, then small companies should have retained many of their workers. Instead, Mr. Autor found little difference between the two groups.
But some economists argue that such research understands the program’s impact because it fails to focus on most small businesses that were less likely to have large cash reserves or other financing.
A paper based on a survey of businesses in Oakland, California, found that PPP loan recipients were 20.5 percent more likely to say they would expect to live six months – but that relatively more optimism under five Was limited to businesses with employees. .
Robert Bartlett, one of the authors of the Oakland study, said economists like Mr Autor might be right that PPP saved fewer jobs than expected. “But for these small businesses, I think it helped them keep their doors open,” he said. “I am convinced of it.” Many of those businesses, he noted, are in poor neighborhoods or owned by racial or ethnic minorities.
Daniel G. Guerra Jr. founded AltusLearn, which provides training and compliance courses to medical personnel in 2013. As of last year the company, based in Madison, Wis., Had six employees and was on track for a year of significant growth.
Instead, when the epidemic began, medical centers halted almost all nonfamily care and canceled training.
“Our world shut down,” Mr. Guerra said.
When revenue dried up, AltusLearn had few options. The company had less than a month’s worth of cash, and unlike large companies, it had some expenses that could cut it. Even layoffs would not have saved it.
“If we didn’t take PPP in April, we would have gone out of business,” Mr. Guerra said.
According to Census Bureau data, small businesses like him – which employ fewer than 10 people – are responsible for only 10 percent of American jobs. But they account for 77 percent of all businesses. Glenn Hubbard, Columbia University economist who was a top adviser to President George W. Bush, said it would be a mistake to thwart those businesses, even if their employment impact was small.
“You can’t save the cost per job,” he said. “That was not the goal. The goal was preserving businesses. “
Indeed, despite its name, the paycheck protection program evolved to place less emphasis on job saving and more emphasis on preventing business failures. Initially, borrowers had to put at least 75 percent of their PPP money towards salaries to completely forgive their debts. But Congress later reduced that requirement to 60 percent, and gave companies more time to spend money.
In reviving the program in December, Congress targeted the companies that would benefit the most. Only businesses with fewer than 300 employees can apply for second-round assistance – a ceiling of 500 employees remains for companies seeking initial loans – and money for very small businesses and low-middle and middle-income people Was set aside.
But the program is still open to businesses that have suffered an epidemic but not necessarily at risk of layoffs or bankruptcy.
Schucher, the Seattle contractor, is one of them. The business has boomed since last spring, but remains below normal. The company avoided layoffs in 2020, and no job cuts are expected this year. But it has applied for a second PPP loan, which Mr. Gisman said would allow it to invest in the business.
“It’s essentially like an insurance policy for businesses that keep trying to invest and doesn’t feel that you’re taking on extra risk despite this economy,” he said. As a result, he said, he expects the company to come out of the recession.